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The Cumulative Cost of Regulations

Author

Listed:
  • Bentley Coffey

    (University of South Carolina)

  • Patrick McLaughlin

    (George Mason University)

  • Pietro Peretto

    (Duke University)

Abstract

We estimate the effects of federal regulation on the value added to GDP for a panel of 22 industries in the United States over a period of 35 years (1977–2012). The structure of our linear specification is explicitly derived from the closed-form solutions of a multisector Schumpeterian model of endogenous growth. We allow regulation to enter the specification in a fairly flexible manner. Our estimates of the model's parameters are then identified from covariation in some standard sector-specific data joined with RegData 2.2, which measures the incidence of regulations on industries based on a text analysis of federal regulatory code. With the model's parameters fitted to real data, we confidently conduct counterfactual experiments on alternative regulatory environments. Our results show that regulatory restrictions have had a net effect of dampening economic growth by approximately 0.8 percent per annum since 1980. Had regulation been held constant at levels observed in 1980, our model predicts that the economy would have been nearly 25 percent larger by 2012 (i.e., regulatory growth since 1980 cost GDP $4 trillion in 2012, or about $13,000 per capita). (Copyright: Elsevier)

Suggested Citation

  • Bentley Coffey & Patrick McLaughlin & Pietro Peretto, 2020. "The Cumulative Cost of Regulations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 38, pages 1-21, October.
    • Handle: RePEc:red:issued:18-227
    DOI: 10.1016/j.red.2020.03.004
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    References listed on IDEAS

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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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